- Papademos warns Greece's public finances could collapse as early as next month
- Says conditions are deteriorating faster than expected as tax revenues fall, spending increases
- Athens bankers estimate more than €3bn of cash has been withdrawn since May 6 election
- IMF chief backtracks on her allegation that Greeks were "trying to escape tax"
Greece's public finances could collapse as early as next month, leaving salaries and pensions unpaid unless a stable government emerges from the June 17 election, according to Lucas Papademos, the technocrat prime minister who left office after this month's inconclusive vote.
Mr Papademos warned that conditions were deteriorating faster than expected with cash flow likely to turn negative in early June amid a sharp fall in tax revenues and a loosening of spending controls during two back-to-back election campaigns.
Mounting anxiety that Greece is headed for further political instability and a possible exit from the euro has prompted many Greeks to postpone making tax payments, and has also accelerated outflows of deposits from local banks.
Athens bankers estimate that more than €3bn of cash withdrawn since the May 6 election has been stashed in safe-deposit boxes and under mattresses in case the country is forced to readopt the drachma.
The looming cash crunch was revealed on Sunday in an eight-point document published by the Greek newspaper To Vima. A senior government official confirmed its accuracy, adding that Mr Papademos gave the document to President Karolos Papoulias, who discussed it with political party leaders as part of a failed attempt to form a national unity government.
"The state will face considerable difficulty covering its expenses in June," the document said.
George Zanias, the caretaker finance minister, may try to divert up to €3bn from the Hellenic Financial Stability Fund -- set up by official lenders to help recapitalise struggling Greek banks -- to provide temporary support for the budget, a ministry official said at the weekend.
But such a move could be opposed by the Fund's board, which set aside the extra financing as a buffer in case of delays in implementing a €45bn recapitalisation plan agreed in March with the EU and International Monetary Fund as part of Greece's €174bn bailout.
The EU has held back €1bn from its latest tranche of bailout money pending formation of a stable government in Athens.
Another option being considered is to raise larger amounts of short-term government debt at monthly auctions held to maintain a €4bn-€5bn cash reserve in case of emergencies, the same official said.
Greece's fiscal problems are purely domestic for the moment as its next sovereign debt repayment is not due until August, when a €3.3bn bond held by the European Central Bank and several other eurozone central banks is due to mature.
Yet the knock-on effects of the tax shortfall are already being felt. The finance ministry has halted repayment of value-added tax to Greek exporters, and slashed public investment spending by more than 20 per cent in the first four months.
Transfers to the health ministry to pay debts owed to hospital suppliers and pharmacies have been temporarily suspended, obliging patients to pay the full cost of prescription drugs for the first time.
The struggling state electricity utility PPC has received a €250m special payment from the budget to help cover a widening deficit. The utility has been hit by a sharp rise in non-payments of household electricity bills after the finance ministry imposed an extra "solidarity tax" last year that was added to the bills.
"The situation is getting out of hand," said a private sector economist. "If a government is formed after the June election, it's going to find that the fiscal programme agreed in March has already been derailed."
Five opinion polls published over the weekend put the centre-right New Democracy ahead of the radical left Syriza coalition, indicating that efforts by the conservatives to consolidate pro-bailout voters may be making progress.
A poll by Kappa Research gave New Democracy as much as 25.8 per cent, against 20.1 per cent for Syriza, with the PanHellenic Socialist Movement trailing in third place with 13 per cent.
The conservatives gained seven points over last week's poll, their strongest showing since the May 6 election, after persuading leading members of the small centre-right Democratic Alliance party to join their campaign.
The veteran New Democracy leader Antonis Samaras was seen as the most suitable prime minister with a 40.3 per cent approval rating, compared with 29.8 per cent for Alexis Tsipras of Syriza.
Christine Lagarde, IMF managing director, appeared to row back from comments in an interview with the Guardian newspaper where she professed a lack of sympathy for some Greeks facing hardships including "those people who are trying to escape tax all the time".
In a comment posted on Facebook, Ms Lagarde said she was "very sympathetic to the Greek people and the challenges they are facing" .
"The last thing we in Greece seek is her compassion," Mr Tsipras said